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On Monday, Axis Capital (NYSE:AXS) Limited maintained its Reduce rating on Avenue Supermarts, the company behind the popular retail chain DMart, while increasing its price target to INR 4,500 from INR 4,300. The adjustment comes in the wake of DMart's reported revenue growth and operational performance.
According to the firm, DMart exhibited a solid year-over-year revenue increase of 18%, though there was a quarter-over-quarter deceleration. The EBITDA (earnings before interest, taxes, depreciation, and amortization) also grew by 18%, but fell short of expectations by 3%.
The analyst pointed out that this operational miss was due to higher staff and operational expenses, despite a slight improvement in gross margins by 30 basis points driven by higher gross merchandise value and assortment (GM&A) salience.
The report highlighted DMart's need for a stronger GM&A salience improvement coupled with consistent revenue per square foot growth and network expansion, noting that the current market price (CMP) offers limited margin of safety for these key performance indicators.
The analyst expressed concerns that the current valuation does not adequately account for the risks associated with a potential shift in the pace of formalization of food and groceries (F&G) towards e-commerce platforms.
The Reduce rating indicates caution, suggesting that the current stock price may not fully reflect the underlying risks and that investors should consider the potential for downside. The new price target of INR 4,500 represents Axis Capital's updated assessment of the stock's value, taking into account the latest financial results and market conditions.
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